Wednesday, January 13, 2016

Energy Analyst Throws In the Towel, Suspends Coverage of All His Oil Stocks (and some thoughts on the interpretation of news)

From Barron's Stocks to Watch Today:
With the price of oil trading near $30 a barrel and oil stocks getting pummeled, Barrington analyst Rudolf Hokanson has decided to throw in the towel on the energy stocks he covers—they include Continental Resources (CLR), Newfield Exploration (NFX), SM Energy (SM), and Whiting Petroleum (WLL)—and discontinue coverage of the energy sector. He explains why:. 
We are suspending coverage of the Energy Sector….Since late November of 2014, when OPEC left their production quotas in place, the oil markets have had no confidence as to the direction of the price of crude oil. The Saudis and the Russians have continued to produce and not hold back on production. They have been joined by other OPEC members and national oil companies as the market seems to chase its tail-price goes down, produce more to make up the difference-price goes down-produce more. 
The U.S. energy market is operated by for profit individual companies and while each behaves independently, there is a more rational approach of spending within capital restraints. Many companies raised capital early in 2015 and proceeded to spend on capital programs believing that the price of oil would recover to the $50 to $60 or higher level by the end of 2015. That did not happen and equity and debt markets have been drying up with little appetite for the increased risk that oil and natural gas prices will remain low for a longer period given the behavior of OPEC and others..As we enter 2016, oil prices are at levels that reflect greater weakness than we had expected. West Texas Intermediate (WTI) futures are below $32. Brent crude futures fell to their lowest levels in more than 12 years this past week, with tensions between the Saudis and Iran seen as eliminating the chance of major producers cooperating to cut output. 
Both high levels of supplies and inventory as well as the strong dollar are pressuring the price of oil. Expectations are for U.S. producers to cut capital spending more in 2016 and many will try to stay within cash flow. With lower oil prices, reserves will be adjusted...MORE
It's still too early to go long but this is a very positive sign. However...

You have to be sensitive to the specific market when interpreting this type of information.

For example, May 2014's "Junior Gold Miners Consider Cashing Out, Pursuing Medicinal Marijuana Opportunities" had more information about the marijuana business embedded in it than it did re: timing gold.

On the other hand, January 2011's "Peak Oil Stalwart to Shutter Forum/News Site, Pursues Career as Astrologer" was a real wake-up call for even the dimmest bulb viz the ascendancy of the shale boom.